US growth slower than thought

The US Commerce Department has revised down its estimate of the rate at which the economy grew in the first three months of the year.

Gross Domestic Product (GDP) growth has now been cut to an annual rate of 1.2% between January to March from the previous estimate of 1.3%.

The government blamed a steep decline in the profits of US firms for the downgrade, the fastest contraction in three years.

There has been a steady flow of profit warnings from US companies since the beginning of the year as companies admit that they will miss their original targets.

The news comes the day after the Federal Reserve cut interest rates by a quarter of a percentage point to 3.75%.

Dwindling profits

The post-tax profits of US firms contracted at an annual rate of 6.2% during the first three months of the year, compared to the 3.1% decline estimate of a month ago.

It is the steepest decline since an 8.4% contraction in the first three months of 1998 when the Asian financial crisis hit the overseas business of US firms.

The economic slowdown and high energy prices were blamed for the fate of US companies, as well as high inventories of unsold goods.

Unexpected change

Most economists had expected the government's final reading on GDP to be unchanged from last month's estimate of 1.3%.

The government had originally reported that the economy was growing at an annual rate of 2% in the first three months of the year.

Many analysts believe that the economy has barely grown during the current April to June quarter.

If the US slips into negative growth for two consecutive quarters it will have technically entered a recession.